How Investor Attention Affects Fraud Discovery and Value Loss in Securities Class Actions

A securities class action is a complex event characterized by scarce information, high uncertainty, and increased information asymmetry between stakeholders and firms.  In our paper “The Effect of Investor Attention on Fraud Discovery and Value Loss in Securities Class Action Litigation,” we argue that investor attention helps to disseminate information regarding fraudulent activity and to shape the market’s reaction to the lawsuit filing.  Specifically, we find that higher investor attention improves learning about fraudulent activity and exacerbates the negative effect of the litigation event.  As more investors learn about fraudulent activity, the negative effect of litigation on a firm’s reputational … Read more